California lets equity strippers into mortgage-aid programs

The California Housing Finance Agency has decided that people who stripped equity out of their homes deserve taxpayer help after all.

The agency announced today that people will no longer be excluded from three of the four Keep Your Home California programs just because they took out a second mortgage or did a cash-out refinance.

Keep Your Home California is a state-run program getting $2 billion from the U.S. Treasury’s Hardest Hit Fund. It is designed to help low- and moderate-income people who are unemployed or owe more than their home is worth pay their mortgage.

There are four individual programs under the umbrella program. Eligible homeowners can get up to $50,000 in assistance from one or more of the four programs combined.

When Keep Your Home started in early February, CalHFA barred people who had raided the equity in their homes from all four programs.

“We knew we didn’t have enough money to serve everyone,” says Diane Richardson, CalHFA’s director of legislation. “We wanted to help people who were in some kind of trouble through no fault of their own, who weren’t upside down because they had taken out equity.”

However, the agency later decided that people who can’t pay their mortgage because they are unemployed or suffered a financial hardship shouldn’t be penalized just because they had robbed their homes of equity.

Under the new rules, people who took equity out of their homes will be eligible for the unemployment mortgage assistance, mortgage reinstatement assistance and transition assistance programs if they meet all the other program requirements.

These same three programs have also been expanded to include mortgages that were originated after Jan. 1, 2009.

The program originally excluded mortgages originated after that date because they also are excluded under the federal Home Affordable Modification Program. “We wanted to be consistent with HAMP,” Richardson says.

But CalHFA found that a lot of homeowners in trouble had refinanced in the last two years and it did not want to exclude them.

Homeowners who took cash out of their homes or whose mortgage was originated after Jan. 1, 2009, will remain ineligible for the fourth program, which offers principal reduction.

To qualify for any of the four programs, homeowners must fall below certain income limits ($119,300 in San Francisco, San Mateo and Marin Counties. For other counties, see here.)

They also must be living in the home and can not own a second home, but there are no other asset limits. Applicants will not be asked how they spent any cash they took out of their homes or how much they have in bank or investment accounts.